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One of Canada's biggest oil and gas bulls is reassuring investors as crude prices head for their first weekly decline since April and high-flying energy stocks drop amid mounting recession fears.
Eric Nuttall, partner and portfolio manager at Toronto-based Ninepoint Partners, stuck to his guns as oil prices turned negative in early 2020. As the sector recovered, his fund, focused on smaller-cap, Canadian energy investments, would be named Morningstar's top-performing energy-focused fund in 2021, posting a blistering 189 per cent total return.
Now, with fears of a recession on the rise as central banks tighten monetary policy in a bid to rein in inflation, Nuttall is reminding investors why his multi-year bull market thesis for oil and gas is unbroken.
"When we account for China emerging out of regional lockdowns, we believe that global demand is back to prior COVID levels. We're seeing a strong surge in travel-related demand as we're all emerging out of lockdown. Governments are reducing hindrances to travel. The online websites [are] reporting that you know the demand for travel is up like three to four times," he said in a video update on Thursday. "So, it's not a demand issue in the short term."
He also points to International Energy Agency figures released on Wednesday, forecasting world oil demand will surpass pre-pandemic levels in 2023.
On the supply side, Nuttall estimates a 500,000 barrel per day global shortfall.
"When we look at the challenges on supply whether it's on U.S. shale, whether it's on OPEC, whether it's on the global super majors, those all very much remained intact," he said.
Nuttall says some demand destruction will be required to balance the market, but he does not expect that to occur until prices climb well above current levels. North American benchmark West Texas Intermediate crude futures (CL=F) tumbled to a three-week low on Friday, losing 5.78 per cent to US$110.79 per barrel at 11:32 a.m. ET.
"This concern about a recession, I truly think is unfounded. Because, fear not what is actually necessary to balance the market," Nuttall said. "What you need is demand destruction, which is what people are fearful of."
"The question is, at what oil prices does that occur," he added. "Maybe it's US$140 [per barrel], but it's higher than where we are today."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.